The Importance of Innovation

I’ve been hearing a lot about innovation recently and how it is so crucial to our economy, says host Mary Walden. She asks her husband, N.C. State University economist Mike Walden, “What exactly is innovation, and why should we focus on it?”

Mike Walden: Well, Mary, we’re going to use the term innovation here to mean not only the creation of something new, which some call “inventing,” but also then the improvement of existing technology. We’re going to wrap all that together and call it innovation. And you’re right: It is really a buzzword now. It’s what you hear everyone talk about in terms of improving our economy. I think there are really two reasons for this. Innovation, first of all, allows us to do things we’ve never been able to do before: Look at 20^th-century air travel, the use of electricity, development of the internet, a lot of advances in beating diseases and illnesses. Obviously these are all things that made our lives better, both to enjoy life and to be healthier, etcetera. But another aspect of innovation is simply to allow us to do things with less — that is, to become more efficient and therefore free up resources to do other things. I think you’re hard-pressed to find an industry where this has not been the case more than in agriculture, in farming. It used to take about a third of us to work on the farm in order to feed everyone. Today, about one and a half people out of 100 work on the farm, and yet we produce more agricultural produce than ever. And in terms of percentage of our budget, food hasn’t gone down very much. All of these things are telling us that innovation is crucial. The question is how do we encourage innovation?  Is it something that we can, say, create a program for and, boom, we’re going to get innovation? Probably not. And then another issue is that innovation does have its costs. For example, look at the typewriter business: There is no typewriter business. Now people who used to manufacture typewriters, of course, don’t do that because no one uses a typewriter. They all use computers. So, you’re going to have some creation of new jobs from innovation. You’re also going to have some destruction of old jobs.